This copy is for your personal non-commercial use only. To order presentation-ready copies of Toronto Star content for distribution to colleagues, clients or customers, or inquire about permissions/licensing, please go to: www.TorontoStarReprints.com

In the span of eight months, the Toronto woman racked up more than $20,000 on her credit cards. She had fallen ill and lost her job as an office manager. With no savings, an aging live-in parent, and all the expenses to take care of, she felt she had no choice but to turn to credit.

“I was desperate with no way out,” says Hidalgo. “I thought, this is it, I’m finally going to find out what it’s like to sleep on the street.”

Article Continued Below

Canadians now reach for credit instead of cash to pay for everyday goods and services. For those who don’t manage money or credit well, this pattern can be devastating.

“People think they can live beyond their means. Well, they just can’t,” Hidalgo says. “I downgraded everything: cable, home phone, cellphone, Internet, everything. I had to send my mother back home (to Ecuador). In the end, I only kept my cellphone.”

Her story isn’t exceptional.

“More and more, individuals rely on . . . their credit cards to get them through the next month or even six or seven months,” says Henrietta Ross, CEO of the Canadian Association of Credit Counseling Services. “We don’t have enough savings, as a population, to see us through when times are tough. With no rainy-day fund, we rack up credit to maintain the lifestyle we’re accustomed to having.”

Collectively, we’ve been on a spending spree. The average consumer debt, not including mortgages, weighs in at $27,485.

As of February 2013, Canadians’ debt-to-income ratio spiked above 164 per cent. That means, for every $100 of personal disposable income, Canadians owe $164.

Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney have repeatedly cautioned Canadians about excessive borrowing and point to household debt as a central threat to the economy.

Their warnings may be sinking in. Even with rising debt, credit-card delinquency rates (non-payment for 90 days and up) were down in 2012.

A recent survey by the Canadian Institute of Chartered Accountants found Canadians are thinking about their debt and getting a handle on it. Half of the respondents said debt-reduction is a high priority in their household, while 59 per cent said they only purchase what they can afford. That still means 41 per cent are fine with spending more than they make.

“On average, Canadians don’t know how to budget,” says Ross. “I don’t know if it’s because they truly don’t know how or because they don’t pay attention to it.”

Gary Rabbior, president of the Canadian Foundation for Economic Education, says Canadians lack confidence about financial matters, because they aren’t being taught basic skills in schools or at home.

“If you build the foundation early on, it becomes natural, and something people don’t have to learn from the school of hard knocks, when it can really bite them,” Rabbior says.

Seeking guidance at any age can be prudent, but consumers must be wary of where they go for advice.

The Financial Consumer Agency of Canada recently released a consumer alert about debt-reduction companies and their too-good-to-be-true offers. These businesses often use high-pressure sales strategies and make misleading claims about slashing debt and protecting credit ratings.

FCAC suggests consumers speak to a credit-counselling agency, or consider consolidating their debt into one loan through a financial institution.

Michael Livingstone, a manager and field technician for an energy company, says he found refuge by getting help from his bank.

“I made an arrangement with the bank to make payments that were comfortable for me and worked with my living expenses,” says Livingstone, of Lloydminster, Alta.

“I don’t like the idea of having to worry about things that are essential in life, like having a roof over your head and clothes on your back. I couldn’t fathom worrying about those things anymore,” he says. “And I know people that still do. I can empathize, but not sympathize.”

Ross says consolidating debt into one loan can be beneficial. One advantage is bringing down overall interest costs.

“When you’re paying significant dollars in interest, those are your scarce dollars that could have gone toward something else, like your savings,” she says. “It’s a compromise, and a very serious one.”

Financial literacy should start early

Teaching money matters at home and in school doesn’t only benefit the child, but parents and teachers, too, says Gary Rabbior, president of the Canadian Foundation for Economic Education.

Q
How complex do you get with a child?

A
Money matters come up early in life. You don’t need to get into the complexities, but the fundamentals that go into good decisions can start at a young age.

Q
Like what?

A
Simple things like trade-offs. They can’t have everything. Teach them that every time you make a decision about one thing, you probably have to give up something else.

Q
Why is talking about money so tough?

A
Right now, it is widely spread that people don’t have a strong sense of confidence in their ability to speak to their children about money. They simply weren’t introduced to the terminology. It’s not rocket science, it’s just never been provided to them.

Q
So where do you start?

A
Helping parents and teachers improve their own financial confidence could be the key, not only for their own sake but for the sake of our kids, too.

Q
How do you do that?

A
I see it as a 50/50 split. To make somebody truly capable and confident, they need both financial education and economic education. I say that financial literacy provides you with the skills to make good decisions about money. Economic literacy helps you understand the real-world context in which you have to make those decisions.

Delivered dailyThe Morning Headlines Newsletter

The Toronto Star and thestar.com, each property of Toronto Star Newspapers Limited, One Yonge Street, 4th Floor, Toronto, ON, M5E 1E6. You can unsubscribe at any time. Please contact us or see our privacy policy for more information.

More from the Toronto Star & Partners

LOADING

Copyright owned or licensed by Toronto Star Newspapers Limited. All rights reserved. Republication or distribution of this content is expressly prohibited without the prior written consent of Toronto Star Newspapers Limited and/or its licensors. To order copies of Toronto Star articles, please go to: www.TorontoStarReprints.com